1. Field of the Invention
This invention relates to a method for authorizing electronic funds transfers. More particularly, the present invention relates to a simplified method whereby a consumer may use the original part of a two-part personal check in its normal manner as a check, or alternatively use the duplicate part thereof as an authorizing document for an electronic funds transfer to a merchant at the point of sale.
2. State of the Art
The Automated Clearing House ("ACH") is a network of the Federal Reserve System that allows Electronic Funds Transfers ("EFT") between member banks. The Board of Governors of the Federal Reserve has determined that it is in the best interest of the Federal Reserve System and member banks to promulgate new rules or modify existing rules to enable the ACH system to process consumer check transactions electronically from typical retail points of sale ("POS") using a conventional paper check as one of the originating documents required under the Electronic Funds Transfer Act of 1978 and Regulation E thereof. The processing of checks electronically not only saves processing time and expense, but also obviates the need to physically transport large volumes of paper checks from place to place within the banking system.
Under current laws and regulations promulgated by the National Automated Clearing House Association ("NACHA"), a valid EFT authorization requires (i) a writing, (ii) signed by the maker, (iii) ordering an ACH transaction, (iv) specifying the amount, (v) the date of order, and (vi) provision of a copy of such writing contemporaneously to the maker. Because of these strict requirements, a conventional paper check does not conform to the specifications for an ACH transaction, and thus a separate, additional written instrument must be created to comply with applicable law. Furthermore, consumers are accustomed to receiving canceled checks returned with their monthly bank statements, and merchants require any dishonored or fraudulent items to be returned to the merchant's bank to facilitate disposition and collection or legal action. NACHA has authorized a pilot program for electronic conversion of checks at a retail point of sale under two models.
Under the first model, called the "Consumer as Keeper" model, the merchant would (i) scan the paper check using standard magnetic ink character recognition ("MICR") equipment, (ii) create a separate writing at the POS containing the required Reg. E authorizing language, (iii) ask the consumer to sign the Reg. E writing, (iv) stamp "VOID" on the original check, (v) return the voided paper check to the customer at the POS, and (vi) return to the customer a copy of the Reg. E writing signed by the customer. Under this model, the merchant retains the original of the Reg. E authority writing as evidence of the ACH transaction with the customer's consent and of the merchant's compliance with applicable law.
Under the second model, called the "Merchant as Keeper" model, the merchant would (i) scan the paper check using MICR equipment, (ii) create a separate writing at the POS containing the required Reg. E authorizing language, (iii) ask the customer to sign the Reg. E writing, (iv) stamp "VOID" on the original check, (v) place the voided paper check in the merchant's archival storage, and (vi) tender to the customer a copy of the Reg. F writing signed by the customer. Under this model the merchant would be required to archive the original of the Reg. E. authority writing and the voided check for seven years as evidence of the ACH transaction with customer's consent, and of the merchant's compliance with applicable law.
However, both of these models fail to address the preferences of both the customer and merchant. Consumers prefer to have their canceled checks returned to them with their periodic bank statement to aid in reconciliation of their checking accounts. However, merchants prefer to have customer's banks return all dishonored checks to the merchant for further disposition, including debt collection and/or legal action. Under either model of the NACHA pilot program for electronic conversion of checks at a retail point of sale, one or the other of these preferences can be met, but not both.
There is thus a need for a simple system and method for a consumer using a check to authorize an electronic funds transfer by a merchant at the point of sale where the both the customer and the merchant may retain copies of the check and the EFT authorizing documentation without requiring additional documents to be created beyond the check itself.